Amazon Can Invest In Deliveroo Despite CMA Flip On Findings

By Matthew Perlman
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Law360 (June 24, 2020, 5:02 PM EDT) -- The U.K.'s competition enforcer said Wednesday it no longer believes British food delivery company Deliveroo would fail due to upheaval in the restaurant industry caused by the COVID-19 pandemic without a recent investment from Amazon but found that the move won't hurt competition anyway.

The Competition and Markets Authority issued a statement Wednesday saying the agency has continued to investigate the deal after provisionally clearing it in April and found that Deliveroo's financial position has improved considerably since the early days of the pandemic.

As a result, the agency said, it no longer believes Deliveroo is at risk of exiting the market, and so it had to analyze the investment for its potential impact on competition. Stuart McIntosh, chair of the inquiry group conducting the review, said a provisional analysis shows the deal can move ahead.

"Looking closely at the size of the shareholding and how it will affect Amazon's incentives, as well as the competition that the businesses will continue to face in food delivery and convenience groceries, we've found that the investment should not have a negative impact on customers," McIntosh said in Wednesday's statement.

The CMA is reviewing Amazon's acquisition of a 16% stake in Deliveroo as part of a $575 million funding round completed in May 2019 alongside existing investors T. Rowe Price, Fidelity Management & Research Co. and Greenoaks Capital. Deliveroo said at the time it had then raised a total of $1.53 billion and would use the new infusion to help grow its engineering team in the U.K. and expand its services' reach.

Enforcers launched an investigation into the transaction in July and referred it for an in-depth review in December after finding it could discourage Amazon from reentering the online restaurant food delivery market in the U.K. The company shuttered its Amazon Restaurants business in the country in November 2018 and its U.S. version of the service last year.

The initial investigation also found issues in the market for grocery deliveries where Amazon and Deliveroo currently compete in the U.K.

But in April, the CMA provisionally cleared the move when Deliveroo told enforcers turmoil in the restaurant industry being caused by the coronavirus pandemic has made the investment necessary for it to stay afloat.

Then, earlier this month, the agency extended the deadline for its review after competitors, including Domino's and the recently merged delivery service Just Eat Takeaway.com NV, questioned Deliveroo's contention that it needs the money to survive, noting an uptick in delivery business caused by the pandemic.

In a summary of its findings on Wednesday, the CMA said that while the coronavirus initially had a severe impact on Deliveroo's order volume and the availability of restaurants, the company's actual performance since the beginning of April has been "significantly better" than the forecasts.

This caused enforcers to take another look at whether Deliveroo should be considered an exiting firm, and they concluded that it should not, according to the summary.

Domino's and its franchisees had also said they remained concerned about the competitive effects of the transaction, contending the move will "reinforce the dominance of the Amazon ecosystem and opens up the real possibility of this dominance being leveraged into restaurant home delivery to the detriment of consumers."

But the CMA said Wednesday that its review found the investment is not expected to damage competition for either restaurant delivery or online grocery delivery. The agency said it looked at internal documents from Deliveroo and Amazon, a survey of more than 3,000 consumers and submissions from third parties in making its determination.

Enforcers again focused on the transaction's potential impact on Amazon's incentive and ability to reenter the restaurant delivery market. They found that absent the deal, Amazon would likely try to reenter the market within the next five years, but that it could also launch a competing service while still investing in Deliveroo.

The size of the stake Amazon is taking, the summary of the findings said, is unlikely to "materially reduce" the company's incentive to start supplying its own restaurant delivery service in the U.K. again.

"We do not currently believe it is sufficiently likely that the investment in Deliveroo would deter re-entry by Amazon if there was a strong financial incentive for Amazon to re-enter," the summary said.

But enforcers also cautioned that this assessment might be different if Amazon were acquiring a larger stake or full control of Deliveroo.

"Were Amazon to acquire a greater level of control over Deliveroo, in particular by making a full acquisition of the company, this could trigger a further investigation by the CMA," the agency said.

In a statement Wednesday, a representative for Amazon reiterated the e-commerce giant's support of Deliveroo, calling it "an innovative, customer-obsessed company with a mission-driven leader."

"Our investment will benefit both consumers of Deliveroo's service and its small business restaurant partners," the statement said. "UK businesses like Deliveroo continue to benefit from broad access to investors and supporters."

Representatives for Deliveroo did not immediately respond to a request for comment Wednesday.

--Additional reporting by Christopher Cole. Editing by Jay Jackson Jr.

For a reprint of this article, please contact reprints@law360.com.

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